January 31, 2018

NAFCU, DCUC relay MLA compliance challenges to DoD, NCUA

NAFCU and the Defense Credit Union Council (DCUC) told the Department of Defense (DoD) in a letter Wednesday of the compliance challenges associated with its explanation of guaranteed acceptance protection (GAP) insurance housed within the Military Lending Act (MLA) rule.

This insurance is addressed in question-and-answer No. 2 from the DoD's 2016 interpretive rule amendments released last month. The groups asked that the question be rescinded from its interpretive rule and the subsequent amendments due to the confusion it has created for credit unions and their third-party vendors.

GAP insurance protects against situations when a purchased vehicle is destroyed or stolen and the value of that vehicle is less than the remaining loan balance. NAFCU and the DCUC said question No. 2 seems to prohibit access to GAP insurance for the MLA-covered borrower when they want to finance the insurance with the loan used to purchase the vehicle.

If a servicemember is caught in a situation where GAP insurance is needed and they don't have it, it could have a negative impact on their overall financial health, NAFCU and the DCUC explained. Rescinding the question from the rule "would deliver much-needed regulatory certainty to credit unions providing and/or facilitating vehicle loans," the letter states.

The letter reiterates credit unions' commitment to protecting servicemembers and their families from financial exploitation, and the substantial efforts the industry has already undertaken to comply with the MLA rule.

"Credit unions, especially those with fields of membership closely tied to the service branches and/or military facilities, have a strong commitment to ensuring servicemembers have access to high-quality financial products and services," the letter states. "However, the compliance challenges presented by the MLA Rule are substantial and many credit unions continue to grapple with the parameters of the rule due to ambiguous regulatory text and muddled guidance."

Read the full letter here. NAFCU and the DCUC also sent a similar letter to the NCUA on Wednesday asking that the agency also urge the DoD to rescind question No. 2.

NAFCU will continue to push for more clarity in the form of guidance or revisions to the MLA rule. NAFCU has a host of MLA resources available here and will soon release an updated version of its Military Lending Act Guide taking into account these revised interpretations.